Recently, the Minister of Power, Sale Mamman disclosed that the power deal between Nigeria and Siemens AG, a renowned German firm, will lead to the upgrading of 105 power substations and construction of 70 new substations across the country. The Minister also disclosed that the Federal Government had made an initial N8.6bn commitment in the transaction. We recall in July 2019, Nigeria and Siemens signed a power sector deal which provides a blueprint on improving power generation and fixing the archaic transmission and distribution infrastructure in the sector. Notably, the president set a goal of achieving 7,000MW and 11,000MW of reliable power supply by 2021 and 2023.

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Siemens’ position in the power value chain remains unclear to us given the huge investment it is committing to make. Currently, the Transmission Company of Nigeria (TCN) is 100% owned by the government while the Gencos and Discos are privately controlled. While we see a possibility of Siemens getting a stake in TCN, we struggle to see how that will work for the discos and gencos given that Siemen’s huge invesments may mean they have to cede
control. Also, government’s desire to maintain a stranglehold on the power sector in bid to regulate electricity tariffs remains a key risk to any investment in the sector. We are also sceptical on Siemen’s ability to recoup its investment given that the liquidity squeeze in the sector attributable to non-cost reflective tariffs remains unresolved.

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Over the years, the widening deficiency in on-grid supply of power has forced consumers into costly off-grid alternatives, which account for 52% of electricity consumption, based on IMF estimates. According to the world bank, about 80 million people still lack access to grid electricity, making Nigeria the country with the largest access deficit in Sub-Saharan Africa. The institution further puts the national electrification rate at 55%, with rural electrification rate at a meagre 39%. Clearly, a lot of work is required in improving the supply of power across the country and ensuring its availability to unserved and underserved households and businesses.

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CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

International Breweries Plc closed with a net loss in the second quarter (Q2) of 2020. They made a revenue of N25.3 billion, 28.5% shy of their achievements in the opening quarter (Q1) of the year.

Cost of sales consumed virtually all the revenue generated, taking as much as 86% in Q2 and 82.5% in Q1. This has been the sad trend/trajectory for International Breweries which ultimately almost guarantees that they close their books with a loss.

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International Breweries Plc is a brewery company in Nigeria with its flagship product being the Trophy Bottle. Other products include Hero Lager, Eagle lager, Eagle Stout, and Beta malt. They have managed to improve revenue but haplessly struggles with rising costs of production and expenditures. The effect of government regulations, with the new excise duty implemented in 2018 hasn’t been palatable. Brewery companies generally do not have the luxury of tweaking their prices at any point in time to improve their topline. This is as a result of the immense sensitivity of the industry where increasing the price of a bottle instantly delivers the customer to the competition, albeit on a silver platter.

COVID-19 stalled operations and interrupted the accustomed seamless flow of activities around the world. Brewing companies have found few and fewer opportunities to consolidate and generate quality turnover. April 2020 ushered in a lockdown of vehicular movements and operations across major cities in the country. Bars, Clubs, Weddings, and other avenues for merriment, which hitherto are hubs for amassing turnover were given secondary attention until further notice. For companies in the industry, sales ordinarily would plunge, in light of these factors. Whilst we acknowledge and recognise the negative impacts the pandemic has wrought, it isn’t entirely accurate to allot all of International breweries travails to this.

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International Breweries, with the figures generated appears, nears its demise. Retained earnings for H1 showed a negative of N12.2 billion, this suggests that the company has made consistent losses. It also has borrowings amounting to over N107 billion naira secured by corporate guarantee with interest ranging between 7%-13%.  And with the ever-increasing negative value for retained earnings, death has been slow but consistent and almost inevitable.

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The statement of cash flow for H1 2020 exposes the true sources of cash inflow for International Breweries Plc. Only 5% were derived from operations, 0.8% from investing activities, and over 90% representing N162 billion from financing activities particularly rights issues.

International Breweries is in sinking sand and must devise new solutions quickly if it entertains any hopes of prolonging its longevity.

Despite the adverse impact of the global pandemic on various sectors in the economy, the Nigerian telecoms sector has remained resilient. According to recent data on key industry fundamentals published by the Nigerian Communications Commission (NCC), the total number of broadband subscriptions grew 23.9% y/y and by 2.8% m/m in June 2020 to 78.8m subscriptions.

Similarly, broadband penetration grew to 41.3% in June 2020 from 33.31% in June 2019 and 40.1% in May. In addition, the number of internet subscribers continued to grow in June 2020, up 1.8% m/m and 17.2% y/y to 143.7m subscribers. We believe the m/m uptick in broadband penetration could be due to gradual reopening of the economy.

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We recall that subscriptions declined on a m/m basis in April but showed recovery in May & June, reflecting the resilience of the sector. Industry players in the telecommunications sector continue to invest heavily in internet infrastructure in a bid to improve 4G LTE coverage across the country. Heightened competition among industry players for market share has also forced bundle prices lower, making internet usage very attractive to the average Nigerian.

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With the advent of the global pandemic, we believe the growing use of digital channels for daily routine activities ranging from telecommuting, entertainment and social engagement bodes well for continued growth in internet penetration. This will be further supported by increasing smartphone penetration, favourable country demographics and a fledgling social media culture. Nevertheless, we believe the sector still requires more investment to bring it at par with more developed climes. With internet penetration still below 50% (39.58% as at April 2020), we think significant potential exists for telecom and internet service providers in Nigeria.

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CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.